Risk Headlines

Fed Officials To Wait For Rate Cuts After Inflation Setbacks - source wsj.com

Key Points:

Federal Reserve's decision to maintain interest rates at their current level is due to persistent inflation concerns while navigating the risks of easing too soon, which could hinder inflation control, and waiting too long, which may lead to an economic downturn.

The underlying significance of no rate cuts is the potential impact on the broader economy, financial markets, and the strategic decisions of firms.

The Fed is closely monitoring inflation and economic indicators to determine the appropriate timing for potential rate adjustments as the markets have tried to predict nearly three to six cuts this year.

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FDIC Chair to Resign Following Cataclysmic Workplace Failings - source wsj.com

Key Points:

FDIC Chairman resigning following pressure from U.S. politicians.  It was revealed by staff to the Wall Street Journal late last year detailing serious toxic workplace culture at the agency and leadership failings at the FDIC that have undermined the agency's credibility, effectiveness, and employee retention, especially among women.  The FDIC turmoil raises a range of reputational, operational and even culture risks that demand attention from the Board on the remediation path forward.

A.I. Risk / Technology Risk

AI Landscape in Retail Banking - source paymentscardsandmobile.com

Key Points:

AI is poised to revolutionize retail banking across customer experiences, decision-making, and enterprise processes. AI's ability to leverage banks' vast customer data in powerful new ways is a key competitive asset in the AI age. However, banks must overcome legacy data infrastructure challenges and carefully balance AI's capabilities with human oversight, regulatory compliance, and risk management imperatives.

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Citi $79 Million Wake-Up Call - The Cost of Inadequate Risk Controls - source qz.com

Key Points:

Citigroup's international broker-dealer arm (CGML) was fined $79 million by British regulators.  Inadequate due diligence and risk management systems were found during investigations between April 2018 and May 2022. Weaknesses in Citi's trading controls persisted despite repeated warnings. An inexperienced trader incorrectly inputted a $444 billion order, intended to be just $58 million, resulting in a "fat finger" error. 

Mistaken orders worth $196 billion were generated in Citi's electronic trading system, with $1.4 billion accidentally executed on European exchanges before being canceled. The lack of preventative hard blocks and inappropriate calibration of controls contributed to the mishap.

Regulatory News - Fines, Losses, & Rules

CFTC Fines J.P. Morgan $100 Million for Supervision- Trade Surveillance - source cftc.org

Key Points:

CFTC fines J.P. Morgan for gaps in its trade surveillance systems across multiple venues and trading systems, resulting from a failure to properly configure data feeds. This led to J.P. Morgan failing to surveil billions of order messages from 2014 through 2021 on a specific U.S. designated contract market, largely consisting of sponsored access trading activity for three significant algorithmic trading firms. J.P. Morgan's quarterly reconciliation process failed to detect these issues due to an erroneous assumption that direct-from-exchange data feeds did not require testing.

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All Hands On Deck - T+1 Settlement on May 28 - source pionline.com

Key Points:

The scale and significance of the U.S. transition to T+1 securities settlement, this change represents a major milestone in the ongoing modernization of financial market infrastructure. By reducing the time between trade execution and settlement, T+1 aims to decrease the buildup of risk between counterparties. This should help contain the fallout if a major market participant fails, promoting greater resiliency of the overall system. Shortening the settlement cycle benefits investors and reduces the credit, market, and liquidity risks in securities transactions faced by market participants.

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SEC Fines $10 Million for Cyber Intrusion Reporting Delays - source sec.com

Key Points:

The Securities and Exchange Commission fined The Intercontinental Exchange, Inc. $10 million for failing to promptly report a cyber intrusion affecting nine subsidiaries, including the New York Stock Exchange, violating Regulation Systems Compliance and Integrity.

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Consumer Finance Regulator Here to Stay - Supreme Court Upholds CFPB’s Autonomy - source wsj.com

The Supreme Court's decision marks a major victory for the CFPB that will entrench its status as a powerful regulator insulated from political interference.

Risk Data to Geek Out On

Vice Chair for Supervision Michael S. Barr - On Building a Resilient Regulatory Framework - source Federalreserve.gov

Key Points:

Chair Barr focuses on the importance of bank regulation in promoting financial stability and supporting the broader economy. The key themes are: 1) Monetary policy remains restrictive to get inflation to target 2) A strong regulatory framework based on capital, liquidity and resolution planning is essential 3) The recent bank failures revealed weaknesses that need to be addressed 4) Adjustments to liquidity and long-term debt requirements for large banks are coming. The common thread is that well-designed regulation is not a burden but a necessity for a healthy banking system that can support the economy through good times and bad.

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Thank you for reading,

Naeem

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